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State considers moving 421-a boundaries again

 
If the fight over the 421-a tax abatement rules seems like ancient history, guess again.

The new rules enacted by the city and state last year (and bemoaned by many real estate developers) have been in place for just a month. But state legislators are already considering changes that could make many in the industry unhappier.

As of June 30, the exclusion area, where developers must make a portion of their new projects affordable to moderate-income households in order to receive tax breaks, was greatly expanded beyond central Manhattan and Williamsburg/Greenpoint to include all of Manhattan and many neighborhoods within the other four boroughs. Brooklyn received the greatest expansion.

State Assembly Housing Committee chair Vito Lopez, D-North Brooklyn/Ridgewood, said at least seven of his colleagues want to amend the lines of the exclusion area within their districts when the Legislature comes back in session this winter. Most want to expand it, he said.

Several elected officials said they wouldn't have a problem making the exclusion area citywide or toughening the affordability requirement necessary to receive tax breaks. Assembly member Felix Ortiz, D-Sunset Park, suggested upping the affordability requirement to 40 percent of each candidate building, up from the current 20 percent.

During the recent construction boom, policymakers had re-directed the benefit — originally created in 1971 to encourage construction of multifamily dwellings — to one that would encourage construction of affordable housing.

"Yes, the market has now slowed down considerably. But as a public policy matter, if developers are receiving tax breaks to build housing, then a percentage of that housing should be affordable to the community," said Assembly member Hakeem Jeffries, D-Prospect Heights/Fort Greene. "Otherwise, the government is subsidizing the development of luxury housing."

The city's version of the bill was signed last December under the mandate that it would be reviewed regularly to respond to changing economic conditions. The state, which is required to approve the bill, passed its own, significantly more expansive version at the end of the 2007 legislative session.

The city's first review is scheduled for December, but City Council spokesperson Andrew Doba said any changes the state makes would supersede the city version.

Lopez said the state legislature would discuss changes when it is back in session, either this fall for a special session, or at the start of the regular session in January.

Industry professionals haven't taken a break lobbying for changes, though. "The industry would like to wipe out the whole bill," said Lopez. "I'm approached regularly about this."

Outside the exclusion area, developers can still receive the tax breaks without including any moderate-income housing.

The affordable breakpoints are pegged at below 60 percent of the area median income for most projects — or 90 percent of the area median income, averaged, for heavily subsidized rental projects like Atlantic Yards.

But it's questionable whether apartments outside the exclusion area would rent or sell priced above those income brackets.

Assembly member Matthew Titone, D-North Shore, said a meeting with Muss Development helped convince him to advocate taking St. George, New Brighton and Clifton — neighborhoods near the ferry terminal on Staten Island — out of the program.

Muss has owned two lots totaling 85,000 square feet near the ferry terminal for 37 years, with no imminent plans to develop them, said a company spokesperson.

Titone said last year, assembly members were given fewer than two hours to determine which portion of their district they wanted in the exclusion area, with the understanding that changes would be made later.

"Before we signed on to 421-a, [Lopez] made it very clear to me that we could amend our districts later," he said.

Many in city and state government confirmed this account. A source in city government expressed frustration at the state's quick decision-making process, given the painstaking review undertaken by a city task force that considered the market conditions and density of each neighborhood to determine if construction of new housing would be viable under the 421-a exclusion area.

Now that he's had more time to consider, Titone said he is concerned the new rules would hinder construction of new housing in St. George, which should be the "crown diamond jewel of Staten Island."

He stressed that the neighborhood already has a lot of below-market housing created under the old Mitchell-Lama program.

The city and state have also eliminated a program that allowed market-rate developers inside the exclusion zone to receive tax benefits by purchasing certificates from affordable housing developers elsewhere, say in neighborhoods like East New York and Co-op City.

Now, the below-market apartments must be on-site. Also, apartments only receive a tax exemption for the first $65,000 of assessed value.

Many industry professionals argue that toughening the 421-a rules will have the opposite of its intended effect, and will ultimately stymie construction of both affordable and market-rate housing.

Jeffries, like many opponents of the certificate program, said the program furthered economic segregation.

"I think that some legislators didn't understand the legislation," said Peter Fine, chief executive officer of the Atlantic Development Group, a leading developer of affordable housing under the old certificate program. "They didn't understand that a lot of these [neighborhoods added to the exclusion area] were marginal markets. And the fact is, the markets in those communities weren't strong enough to put market and affordable [apartments] in the same building."

There are roughly 3,800 remaining certificates that could be sold to a developer, after which no more can be produced.

Sol Arker, principal of affordable housing developer the Arker Companies, said unless the certificate program is reenacted, construction of affordable housing in outer-borough neighborhoods would grind to a halt.

He said the new rules "will require developers of affordable housing to rely upon government subsidy, as opposed to the equity that was realized from the sale of certificates."

For his part, Lopez said the state is not considering reenacting the certificate program.